GCC Quarterly Review - Q4 2018

Foreign investment changes in Saudi Arabia: Saudi Arabia has revised foreign investment restrictions and processes:

• The Saudi Arabian Council of Ministers has revised the Saudi Arabian General Investment Authority’s (SAGIA) “Negative List”. Under the revised regime, Saudi Arabia now permits foreign investors to invest in the following sectors, which have been removed from the Negative List: (i) road transport, (ii) real estate brokerage, (iii) audiovisual services and (iv) recruitment and related services.
• The Private Health Institutions Law (Royal Decree No.M/40 dated 3/11/1423H (corresponding to 6 January 2003)) has been amended to remove the restriction on foreign ownership of private health institutions in Saudi Arabia. Previously, foreigners were only permitted to invest in hospitals.
• SAGIA has made several changes to the foreign investment licensing rules and procedures. SAGIA has launched a foreign investment e-licence, using a new online application procedure. An “instant” licence issuance or renewal service is now being offered by SAGIA to foreign investors that are listed on a local or international stock market and meet certain conditions. SAGIA now offers five-year investment licences to existing and new investors (but this is discretionary). In the past, all licences were limited to one year and then had to be renewed.

Further changes to foreign investment relations are anticipated in early 2019, following announcements by the Minister of the Economy. These developments form part of ongoing reform initiatives to liberalise foreign investment restrictions in order to encourage inbound investment and a thriving private sector, in line with the Vision 2030 goals. Global index provider MSCI is set to reclassify Saudi Arabia as an emerging market from the middle of 2019, which may further boost foreign investment. Read more…

Saudi Arabia may permit foreign strategic investors: The Saudi Arabian Capital Markets Authority has consulted on draft regulations allowing foreign entities to become Foreign Strategic Investors (FSIs) in Saudi Arabian companies listed on the Saudi Stock Exchange (Tadawul). If enacted, these regulations are likely to complement, but operate independently from, the regulations permitting Qualified Foreigner Investors (QFIs) to invest directly in companies listed on the Tadawul. Read more…

Saudi Arabia becomes AAOIFI member: The Saudi Arabian Monetary Agency (SAMA) has become an institutional member of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the leading international body responsible for setting Shariah standards for the Islamic finance industry. AAOIFI has members from more than 45 countries, including central banks and Islamic financial institutions. Unless explicitly adopted by the relevant financial regulator in a particular jurisdiction, the AAOIFI standards are not legally binding. Countries have adopted different approaches to regulatory oversight and so it remains to be seen what approach Saudi Arabia will take.

UAE eases foreign investment restrictions: The United Arab Emirates (UAE) has introduced long-anticipated legislation which liberalises restrictions on foreign ownership of companies incorporated “onshore” in the UAE (i.e. outside the free zones). Federal Law No.19 of 2018 regarding foreign direct investment establishes a new framework for foreign ownership, which allows foreigners to own up to 100 per cent. of the share capital in UAE companies operating in certain sectors, subject to licensing requirements. The implementing regulations will be eagerly anticipated in 2019. Read more…

New UAE financial services law: Federal Law No.14 of 2018 regulates financial services within the United Arab Emirates and the operations of the UAE Central Bank. The regime now extends to activities conducted “in or from” the UAE. Some of the key features of the new law include a new prohibition at a federal level against the marketing of financial services without first obtaining a licence, a revised list of regulated financial activities for which UAE Central Bank approval is required, recognition of foreign judgment and regulatory enforcement overseas in respect of a UAE licensed financial institution or a branch of a foreign bank in the UAE and a more expansive list of penalties for breaching the new Central Bank rules (including imprisonment). Read more…

UAE enacts stand-alone netting law: Federal Decree Law No.10 of 2018 regarding Netting confirms the effectiveness of netting provisions under specified contracts in accordance with the terms of the parties’ contract, both prior to and following the commencement of insolvency proceedings in the UAE. This is the first time that netting has been regulated on a stand-alone basis in the UAE (outside of the financial free zones). Read more…

UAE regulates Federal public debt: A new Federal Public Debt Law (Federal Law No.9 of 2018) establishes for the first time frameworks for public debt management at a Federal level and for the issuance of a Federal sovereign bond. The new regime provides for a ceiling on the amount of public debt which may be outstanding at any time at a Federal level, attaches conditions to debt instruments issued by the Federal Government and regulates guarantees by the Federal Government. Read more…

UAE to regulate ICO Tokens as Securities: The UAE’s Securities and Commodities Authority (SCA) has approved a plan to recognise digital tokens as securities and introduce a framework to regulate cryptoasset activities, including initial coin offerings (ICOs), exchanges and other intermediaries. Read more…

Final phase of Basel III implementation in the UAE in 2019: 2019 sees the final phase of implementation of UAE Central Bank rules regulating the capital adequacy of banks operating in the UAE in line with revised rules outlined by the Basel Committee on Banking Supervision in Basel III. Banks operating in the UAE will need to fully comply with the additional buffer requirements (which may be imposed in some circumstances) set out in UAE Central Bank Circular No.52/2017 Circular, which have been increasing each year until full implementation in 2019. Read more… You can also read more in our article “Gulf economies on the road to recovery ten years after Lehman Brothers’ collapse”.

UAE amends law on criminal liability for arbitrators: Arbitrators sitting on arbitrations in the UAE (including free zones) will no longer face criminal liability for breach of the duties of impartiality and integrity under Article 257 of the Penal Code (Federal Law No. 3 of 1987). Federal Decree No.24 of 2018 removes arbitrators from the scope of application of Article 257 of the UAE Penal Code, reversing an amendment which extended their liability in 2016 (read more). This change is likely to be welcomed by international and UAE arbitrators, who had expressed concern about the prospect of the risk of criminal complaints being filed when sitting in the UAE.

New DIFC Companies Law 2018: The Dubai International Financial Centre (DIFC) has made significant changes to the companies’ law regime from November 2018. One of the most important changes is to the classification of companies, which affects existing companies and new companies being established in the DIFC. Other key features include a more comprehensive set of codified directors’ duties, a new merger regime and a new compromise and arrangement procedure, which draw on best practice from other common law jurisdictions. Read more…

Bahrain to adopt VAT in 2019: Bahrain is set to implement the new Value Added Tax (VAT) regime on 1 January 2019. The VAT law was published in October 2018, with implementing regulations to follow in early 2019. Bahrain is expected to adopt a phased implementation of the new regime, dependent on the level of turnover of the taxpayer. This forms part of a regional introduction of VAT across the GCC Member States (the UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman), based on the principles agreed in the Unified GCC Agreement for Value Added Tax. The UAE and Saudi Arabia implemented VAT on 1 January 2018. Other states have delayed implementation of the tax; for example, Kuwait has announced it expects to implement VAT by 2021.

Kuwait may ease foreign investment rules for listed banks: Foreign investors may soon be able to invest in listed shares in Kuwaiti banks, according to reports of a new decision issued by the Kuwaiti Ministry of Commerce and Industry. It is reported that the approval of the Central Bank of Kuwait will be required if the foreign ownership exceeds 5 per cent of the bank’s capital. Further clarity on the new rules would be welcome. Under existing foreign investment rules, foreign investment is restricted to 49 per cent. of a Kuwaiti company’s share capital, unless a higher or lower level of investment applies for the relevant sector.

Global interest rate reform: The global reform of interest rates presents significant challenges for market participants. Developments in this area are moving swiftly and regulators are looking to market participants to lead the transition from interbank offered rates to risk-free reference rates. Our guide to interest rate reform summarises the key elements of these critically important initiatives and highlight their complex interaction across financial products and markets. Read more…

Year in Review 2018 and Year to Come 2019: Now in its 8th year, our hugely popular Year in Review and Year to Come series brings together analysis, thinking and highlights from our lawyers around the world, in the form of topic-specific and jurisdictional guides. These guides summarise a selection of the major developments you should be aware of from 2018, and a selection of key changes that we anticipate in 2019. You can read more about developments in the UAE and Saudi Arabia as well as a range of other jurisdictions. You can also view our dedicated Global Fintech Year in Review, Year to Come page.